A demographic and economic profile of low-income financial consumers

1. Demographic and Economic
Profile of Low-Income Financial
Consumers
Alvaro Lima & Pete Plastrik
May 2007

2. 58% 42%
< $10,000 - about 9.5M
HH
$10,000 to $24,999
about 22M HH
$25,000 to $34,999
about 13M HH
Approximately 42% of all households (HH) in the U.S. are low-income
families1
All U.S. Households:2
1
Total number of low-income households are calculated by the number of HH at or below 80% of median regional income ($45,106.00 for the Northeast,
$44,646.00 for the Midwest, $38,410.00 for the South and $44,744.00 for the West).
2
According to the Current Population Survey of the US Census Bureau there are a total of 106.5 HH in the US; average household size is about 2.5
persons, 2000 Decennial Census.
Low-Income Households1
( < $35K )
approximately 44.5M HH
Moderate to High Income
Households ( > $35K )
approximately 62M HH
Data Source: Detailed Income Tables from the Current Population Survey, U.S. Census Bureau, March 2001

3. Approximately 9.5% of these households do not hold any kind of transaction
account1
; 85% of them have incomes less than $25,000 and 50% have incomes less
than $10,000
Under $10000
50%
$10,000 to $24,999
35%
$25,000 to $49,999
13%
$50,000 to $99,999
2%
> $100,000
0%
1
Transaction Accounts comprise checking, savings, money market deposit accounts, money market mutual funds, and call accounts at brokerage firms
2
Unbanked HH are those HH without any kind of transaction account.
Data Source: Survey of Consumer Finances (SCF), 1998. The 1998 SCF represents 102.6M HH; Calculated
from results presented in Arthur B. Kennickell, Martha Starr-McCluer and Brian J. Surette, “Recent changes in
U.S. Family Finances: Results from the 1998 Survey of Consumer Finances
5MHH
3.4MHH
1.2M HH
0.2M
HH
Distribution of “unbanked” HH by income2
NOTE: The SCF does not separate out data for HH in the $25,000 to $34,999 category. The estimated number of low-income HH without
transaction accounts is between 8.4M and 9.6M or ~22% of all low-income households.

4. Some Demographic & Economic Profile of “unbanked” HH (1998 Survey of
Consumer Finances ):
• 15.4% of HH with heads of households under 35 years do not have a transaction account
• 33% of all African-American HH and 29% of Hispanic HH are unbanked
• Three out of ten low-income families are headed by individuals with less than a high school
education, and one-third of the heads of households have only a high school education1
• The unbanked live from “paycheck to paycheck”, typically spending the entire value of their
checks on bills, wire transfers, debt payments, etc.
• As a result, they are likely to bounce checks frequently, compounding their “unbanked”
status; fees charged for bounced checks accumulate quickly, and often amount to a
significant proportion of their meager income
• They typically have no access to credit from mainstream financial institutions because of late
or missed payments in the past
• They typically have no financial savings
• They are subject to high fees imposed by alternative financial providers such as check
cashers and payday lenders; over time, these can be substantial
• They rent, rather than own homes
• They typically carry a high debt burden (see Appendix A for details)
1
“Recent Changes in U.S. Family Finances: Results from the 1998 Survey of Consumer Finances” by Arthur B. Kennickell, Martha Starr-McCluer and
Brian J. Surette

5. In contrast, lower-income families with transaction accounts are more likely to
purchase asset-building, investment and insurance services products
Source: Recent Changes in U.S. Family Finances: Results from the 1998 Survey of Consumer Finances by Arthur B. Kennickell, Martha Starr-McCluer
and Brian J. Surette
Percentage of HH holding financial assets in the two lowest income categories
61.9
86.5
7.7
16.8
3.5
10.2
3.8
7.2
1.9
7.6
6.4
25.4
15.7
20.9
0
10
20
30
40
50
60
70
80
90
100
< $10,000 $10,000-$24,999
Transaction Accounts.
CDs
Savings Bonds
Stocks
Mutual Funds
Retirement Accounts
Life Insurance
PercentageofFamilies
Income Category
Joanne Hogarth and Kevin H. O’Donnell show that lower-income HH with a deposit account are more likely to own other financial products;
Analysis from the 1995 survey in “Banking Relationships of Lower-Income Families and the Governmental Trend toward Electronic Payment”

6. Detailed analysis reveals at least four distinct segments within banked and
“unbanked” lower-income households
Annual
Income
Income
Source
% of U.S.
Population
Education
Attainment
Race/Ethnicity
EI Tax
Credit
Welfare
Dependent
> $12,000
Govt.
Assistance
> 50% HS
diploma or
GED
NO
New
Immigrant
> $14,001 Wages Unlikely
Working
Poor
$17k - $34k
Wages +
Govt.
Assistance
16.7
> 50% HS
diploma or
GED; 10%
College
Grad.
66% white
18% black
11.6% Hispanic
YES
Seniors
Wages,
Retirement,
SSI
NO
1
From the U.S. Census Bureau’s Household Economic Studies; percentages by 1995 not available; however, about 75% are poor (below the Federal
Poverty Level) and more likely to be unemployed
2
Urban Institute Tabulations from the 1997 National Survey of America’s Families; number excludes retirees; uses lower-income threshold as 200% of
Federal Poverty Level; cutoff for this analysis was $34,000
3
From “A Profile of Older Americans: 2000” , Administration on Aging, U.S. Department of Health and Human Services
Note: These estimates for % of population are high level approximations, and
will need to be revised during subsequent phases of the project

7. Low-income consumers without transaction accounts often seek alternative
service providers for their routine financial needs1
Routine Financial Needs
Receiving Income
Cashing Check
Paying Bills
Sending Money Home
Building Savings
Borrowing Money (short term loans,
e.g., payday loans)
Buying Convenience Items (stamps,
pre-paid calling cards, etc.)
Delivery Channels
Banks
Check Cashers
Bodegas
Pawn Shops
Loan Sharks
Short-term Loan Companies
Liquor Stores
Money Transfer Companies
Informal Savings Circles
Cookie Jars
1
However, there is evidence in the literature that alternative service providers are also used by consumers with transaction accounts

8. One hand, mainstream depositary institutions are at odds with the financial
needs of the low-income segments and on the other, non-depositary institutions
(money transfer companies, check cashing, etc.) by law cannot provide deposit-
based products:
Savings & Loans
Deposit Accounts
Small
Savings
Borrowing ( short
term loans, e.g.
payday loans)
Sending Money to
Families
Paying Bills
Cashing Checks
Mainstream Financial Institutions
Financial Needs of Low-income Immigrant
Bills Payment
Check Cashing
Money Transfer
Non- Financial Institutions
Low-income Immigrant Needs Versus Financial Offerings
Source: Alvaro Lima and Peter Plastrik, 2005.

9. 9
DRAFT for discussion only
Few financial assets, level of comfort, privacy, and lack of appropriate
products and services drive low-income consumers away from banks and to
alternative providers
• Not enough money
• Don’t write enough checks
Level of Comfort • Prefer dealing with humans
(“high touch”)
• Do not trust banks
Privacy and Legal Risk • Undocumented immigrants are
afraid to enter branches with
security guards or that a bank
record may reveal their identifies
to the INS
• Fear that their unfavorable credit
histories will be revealed
Products and Services • Fees are too high
• Period for cashing checks is too
long
• No “one-stop” shopping
experience
• Minimum balance requirements
are too high
Few Financial
Assets

10. 10
DRAFT for discussion only
Survey results support this premise...
Survey data on reasons why LIC do not have a
checking account
Source: Federal Reserve, 1998 Survey on Consumer Finances
Source: John P. Caskey,
Lower Income American, Higher Cost Financial Services
(Madison, WI: Filene Research Institute)
53.3%
23.1%
22.1%
21.6%
17.6%
9.5%
8.5%
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%
Don't need account because I have no savings
Bank account fees are too high
Banks require too much money just to open an account
Iw ant to keep my financial records private
Not comfortable dealing w ith banks
Banks w on't let us open an account
No bank has convenient hours of location
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%
Do not write enough checks
Do not like banks
Not enough money
Service charges are too high
Minimum balance is too high
Cannot manage/balance an account
Do not need/want an account
Other reasons
Credit problems
Inconvenient bank hours/locations
WhyfamiliesdonotownCheckingaccounts
Percentage of Families
Survey data on reasons why LIC do not have a
transaction account

11. 11
DRAFT for discussion only
Check cashers dominate as alternate service providers operating as a “one-
stop-shop” offering in some locations additional items such as transit
tokens, vehicle licenses, etc.
Banks
Check Cashers
Bodegas
Grocery Stores
Western Union or
similar Institution
Government
Loan Sharks
Liquor Stores
Informal Savings
Mechanisms
Cookie Jars
Pawn Shops
Key
Receiving
Income
Cashing
Checks
Paying Bills
Sending
money to
families
Building
savings
Borrowing
Money (short-
term loans,
e.g., payday
loans)
Buy convenience
items
(stamps, pre-
paid calling
cards, etc.)
Welfare
Dependent
New Immigrant
Working poor
Bootstrapper
Emerging Middle
Class
Seniors
Routine financial needs

12. 12
DRAFT for discussion only
1987 1997 1987 1997 1987 1997 1987 1997
Type of Check
Payroll 1.62% 2.34% NA 2.00% 0.78% 1.00% 3.00% 6.00%
Social Security 1.59% 2.21% NA 2.00% 0.77% 0.80% 3.00% 6.00%
Personal 4.51% 9.36% NA 10.00% 1.60% 1.85% 12.00% 16.00%
Average fee Mode Low High
Source: Check cashers charge high rates to cash checks, lend money, Consumer Federation of America, 1997
Alternative service providers have enjoyed tremendous growth despite their
high costs
• The number of check cashing outlets in the United States has grown from about 2,151 outlets in
1986 to about 5,400 in 1997
• There are between 12,000 and 14,000 pawnshops across the country, outnumbering credit unions
and banks
• Payday lending (money advanced against the next paycheck) grew nationally from 300 stores in
1992 to more than 8000 in 1999 (Michael A. Stegman in Savings for the Poor, 1999)
Example: Check Cashing Fee Summary
There is clearly a perception among the lower-income, unbanked population that it is cheaper to do business
with alternate providers, while in reality, the cumulative expense may be significantly higher

13. 13
DRAFT for discussion only
Alternative service providers conduct approximately 280 million transactions
per year, representing $78 billion in gross revenues (5.5 billion in fees alone)
Check cashing 180 Million $60 billion $1.5 billion
Payday Loans 55-69 million $10-13.8 billion $1.6-$2.2 billion
Pawnshops 42 million $3.3 billion N/A
Rent-to-own 3 million $4.7 billion $2.35 billion
N/A N/A N/A
Total N/A 280 million $78 billion $5.5 billion
Source: Table 1, Fringe Lending is Real Money: Estimated Annual Transactions, in “Financial Services in Distressed
Communities: Framing the Issue, Finding Solutions”, by James H. Carr and Jenny Scheutz, Fannie Mae Foundation,
August 2001
To put this in perspective the total fees ($5.5 billion) are only slightly less than the entire asset base of the
more than 460 community development Financial Institutions (CDFIs) operating in the US (Carr and Scheutz)
Potential market for banks?
Service
Fee/Rate per
Transaction
Volume of
Transactions
Gross
Revenues
Fee Total
Auto Title Lenders
2-3% payroll and
government checks
(can exceed 15% for
personal checks)
15-17% per 2 weeks
400% APR
1.5-25% monthly
30-300% APR
2-3 times retail
1.5-25% monthly
30-300% APR

14. 14
DRAFT for discussion only
In addition, several facts and ongoing initiatives provide compelling
evidence of an untapped opportunity...
• Previous or existing banking relationship
• Case Studies of banks that have been
successful in this space
• Government Initiatives
• Initiatives by Consumer Organizations
• About 46% of the unbanked have had bank accounts in
the past, and several use banks to cash checks
• By redesigning their products and services, some banks
have (re)capture a sizeable portion of the lower-income,
unbanked market (e.x. Brazil)
• E.g., Fleet Community Banking Group, Shorebank,
Union Bank, others
• EFT ‘99, First Accounts 2000, the Community
Reinvestment Act, Individual Development Accounts
(IDAs), CDFI Fund, other government programs to
encourage the unbanked to build savings
• The America Saves Campaign launched with the support
of Bank of America

15. 15
DRAFT for discussion only
To exploit this enormous opportunity, banks must re-design their
products and services to meet the needs of this complex and diverse
market, and radically re-design existing cost structures

16. Demographic and Economic Profile of Low-Income Financial Consumers
Potential Market for Mainstream Financial Institutions
A Life Cycle - Full Service Strategic Model
Appendices
• Who are the low-income consumers? What are the primary characteristics and behaviors
that drive their selection of financial services and providers?
• Where do low-income shop for financial services?
• What is the size of the low-income market?
• What are the key strategic shifts that banks and other financial institutions need to make
to serve this market effectively?
• What are the benefits for Financial Institutions and low-income consumers?
Case Studies
Executive Summary

17. 17
DRAFT for discussion only
Network Externalities
The value to customers is in the full
range, life-cycle value
proposition
Increased
market size
Increased
attractivenessIncreased value
and reduced risk
Increased
sales
Integrated Product Lines
Switching costs increase due to
investment in offering,
learning and use
Increased customer
investment and
commitment to
product/service
Increased value
to customer of
product/service
Increased loyalty from
increased switching costs
and decreased value of
competitors’ product/service
Leverage Education and
Technology
Technology development and financial
education reduce operating, fixed,
and distribution costs
High-volume
sales drive
down fixed-cost
component
Lower
prices and
marketing
costs
High
margin
In order to serve the financial needs of low-income residents effectively
and profitably, financial institutions need to develop new retail banking
models, integrate product lines, and leverage education and technology
Three Strategic Adjustments
New Retail Banking Models

18. 18
DRAFT for discussion only
These three key strategic adjustments should follow these general
characteristics...
Integrated Product Lines:
• Adjust products and services offerings to match low-income consumer needs
• Integrate products to profitably serve low-income consumers over their life cycle
• Offer full service product line spanning from basic services to asset-building
instruments
• Create migration mechanisms to move consumers from basic services to wealth
building
New Retail Banking Models:
• Redesign branches to match full service - life cycle character (one-stop-shop)
• Redesign branches to reduce investment costs (light structures; mail box etc. style)
• Explore co-location of “express” branches (supermarkets, etc.)
• Mix high touch with technology (bricks and clicks) to reduce operating costs
1
2
Leverage Education and Technology:
• Design financial literacy, credit counseling, investment advisory programs to educate
consumers and enable them to migrate from basic services to wealth building
• Leverage relationships trough partnerships with non-profit organizations to deliver
training and counseling
3

19. 19
DRAFT for discussion only
Redesigned branches may welcome more unbanked, lower income consumers
and help banks keep costs in check
• Key features of a redesigned branch
– provide “one-stop shopping” services: check cashing, money orders, wire transfers, bill
payments, stamps, fax and copy services, etc.
– structure, operation and location of branch designed to fit in with needs of local demographic
(e.g., in-store branches such as in supermarkets, video stores, etc.) and real-estate options in
lower-income areas
– low-cost operations with optimum use of technology and human resources to offer “high-touch”
personal service, yet lower operations costs for banks
· flexible staffing
· use of technology, with option of personal service (“bricks and clicks” model)
· share costs with strategic alliance partners
New Retail Banking Model1

20. 20
DRAFT for discussion only
Evidence suggests a mix of traditional and non-traditional products and
services customized to the needs of the lower-income segment
Alternate
Financial
Service
Providers
Banks
Non-traditional products
and services
Traditional products and
services
Banks will need to
provide some non-
traditional
services to attract
the lower-income
consumer base
Integrated Product Lines2

21. 21
DRAFT for discussion only
Possible partnerships and delivery mechanisms for product/service portfolio
includes...
Possible PartnershipsProduct and Service Portfolio Delivery Channels
• Basic Services
• Asset Building Accounts
• Credit Cards and loans
• Insurance and investments
• Financial Literacy and
Education
• Check Cashing Companies
• Government payments
• Local Discount or Grocery Stores, Post
Office?
• Private Sector (established businesses in LI
neighborhoods)
• Community Development Organization
• Philanthropic Organizations
• Private Sector (established businesses in LI
neighborhoods)
• Insurance Companies,
• Brokerages
• Private sector (established businesses)
• Learning and Education Centers
• Community Development Organization
• Non-profits e.g. Operation HOPE
• ATM Machines
• Stand alone Check Cashing
Outlets
• Kiosk?
• Direct Deposit
• Direct Deposit, other
• Internet (e-learning)
• Class rooms
Integrated Product Lines2

22. 22
DRAFT for discussion only
Banks might structure their portfolios to first meet the needs of low-income
residents, then transition them to more mainstream services, ultimately
building wealth creating instruments
• Check cashing and other
services provided by traditional
check cashers,
• Low minimum balance deposit
account
RETAIN
Credit and loans
• Traditional savings accounts
with some non-traditional
features, e.g. Union Bank Nest
Egg account
• IDA-like accounts, with more
flexibility
BUILD AND GROW
Insurance and
Investments
CONVERT
Savings
A full-service portfolio structured
to create wealth and serve the life-
cycle needs of the low- income
consumer
WEALTH!!
ATTRACT AND ACQUIRE
Basic Services
• Health, life, auto
and mortgage
insurance
• Savings bonds,
pensions, other
investment
options
• High-risk, deposit
secured emergency
loans
• Loan guarantees
• Creative financing for
small businesses and
homes
See Appendix D for a detailed product/service descriptions
Financial Literacy and Education programs must be offered throughout the Life Cycle
INCOME
Integrated Product Lines2

23. 23
DRAFT for discussion only
Basic services
Product and service bundles may be designed to move low-income
customer relationship further along the life-cycle
Wealth
Creating
Strategies
Insurance and
Investments
Credit and
loans
Savings
Product/Service
bundle
Product/Service
bundle
Product/Service
bundle
Product/Service
bundle
Integrated Product Lines2

24. 24
DRAFT for discussion only
$1.07
$.01
Banking
$2
Travel Booking
$10
$150
$6
Trading
Old Economy
eEconomy
Approximate Cost Per Transaction
Technology has changed everyday transaction costs in dramatic,
observable ways.
Leverage Technology and
Education
3

25. 25
DRAFT for discussion only
Technology can provide significant savings for banks, and better access
and options for lower-income consumers
• Examples abound in the literature of the use of technology in this market
• Online distance learning to provide
Financial Literacy, computer literacy and
other training
Greater access to consumers, lower cost
to Banco Poplar
Greater access, convenience to lower-
income consumers
• ATMs in Post Offices, access via debit
or credit cards
U.S. Postal Service in partnership with Key
Bank, sponsored by the U.S. Treasury
Benefit
Technology used and service
provided
Financial Institution
Banco Popular
• Direct Deposit with “Acceso ETA”, a low-
cost account that allows customers to
receive their federal benefits via direct
deposit, and offers full access to all
traditional distribution channels as well as
access to over 22,000 ATMs and POS
terminals in Puerto Rico
Citicorp
Operation HOPE in partnership with
Smartforce.com and UCLA
Extension School
• Delivery of Electronic Benefit Transfer
funds through ATMs and POS
terminals, grocery stores, pharmacies
and check cashers
• “PayTM” - a program with an embedded
savings account that allows certain
corporate customers to deliver payroll to
employees electronically
• Delivery of services to via telephone,
ATM and online banking
Significant cost savings to Citicorp
Wider reach, consumer education
Leverage Technology and
Education
3

26. 26
DRAFT for discussion only
Educational ComponentsStrategies DeployedFinancial Institution
However, none of this is possible without the appropriate financial and
basic math literacy, education and credit counseling programs
• Financial Literacy services are mutually beneficial to both the provider and the consumer when bundled
with other life-cycle products mentioned earlier; two models follow, but there others, including Operation
Hope (see Case summary in Case Studies section of the document)
State Farm Insurance
• Invested at least $50 million to finance
outreach, training, insurance underwriting
and home safety loans
• Created the Home Safety Program in alliance
with Neighborhood Housing Services (NHS)
of Chicago
• NHS sponsors inspections of potential
safety hazards such as furnaces and
electrical systems and provides loans if
repairs or replacements are needed
• State Farm funds loans once homeowners
have undergone training in repair and fire
safety
• Established home buying seminars in co-
operation with NHS; corporate
representatives explain the home and
insurance purchasing process, help with
credit repair, and educate prospective
buyers on property inspection and upkeep
• These courses help future homeowners in
the neighborhoods and identify new
business for State Farm
Bank of America
• Bank of America’s increased mortgage lending
portfolio has been facilitated through its
relationship with the nonprofit Neighborhood
Assistance Corporation of America (NACA)
• Prospective buyers attend a mandatory, 10-
week training program in order to qualify for a
Bank of America Loan with no downpayment,
but at market-level interest rates. Those who
complete the class must invest in a
neighborhood stabilization pool to cover late
payments
• Courses cover personal finance, how to
qualify for a loan, how to repair a credit
history and how to save money for home
repairs
Leverage Technology and
Education
3

27. 27
DRAFT for discussion only
Benefits to Banks and Low-Income Consumers
Market and Profit potential
several “unbanked” (about 50%) consumers already cash their checks at banks, thrifts or credit unions; banks can
grow these into more profitable relationships by providing basic accounts to this market
by providing both, non-traditional and traditional banking services, banks can benefit from economy of scale and
generate enough revenue to cover fixed costs
the right partnerships and strategic alliances within the lower-income communities have enormous potential to open up
new avenues of revenue, by pooling resources and serving as “aggregation points”
Leverage existing infrastructure and access
Banks have a few advantages over check cashers: direct access to check clearing systems and a relatively low cost of
financial capital
Government incentives
There are several government initiatives, incentives and policies geared towards bringing the lower-income market into
the financial mainstream; banks can benefit from these (e.g., the Community Re-investment Act, CRA)
Why should banks consider this market?

28. 28
DRAFT for discussion only
Benefits to Low-Income Consumers
Accumulate wealth
it is difficult to accumulate savings and financial assets without a bank account
paying high costs for financial services (check cashing, payday loans) can significantly reduce the amount lower
income households can save
Access to credit
without a bank account, it is difficult to establish credit, obtain a credit card, qualify for loans or obtaining any kind
of financing for a small business
Access to online services and commerce
without a bank account or credit card, it is impossible to conduct transactions online
Ability to take advantage of government savings investments and other plans (e.g., IDA)

29. 29
DRAFT for discussion only
Challenges to Banks
• High risk due to the impaired credit history of this market
• Careful planning to ensure profitability in a reasonable time frame
– market research
– product/service design
– redesigning existing cost structure, and finding innovative ways to keep costs low (e.g., redesigned branches)
– cost-effective delivery systems
– alternate risk management systems
• Existing investment in fixed assets and product lines
• Overall revenue opportunity may be perceived as too small by banks, given the low fees for basic
services; however, this opportunity could grow considerably as banks consider not only the
unbanked but other customer segments within the lower-income category
• Branding or product positioning could pose a challenge to banks as they will need to balance their
ability to appeal to the lower-income market, while retaining their positioning and image in their
current target markets
• Fragmentation and varying quality of existing financial literacy, credit repair, and investment
counseling programs
• Extensive consumer research to identify micro-markets within this complex and diverse population,
and tailor products and services accordingly

30. 30
DRAFT for discussion only
Appendix B - Service/product description summary
• Basic Services
– Commercial Check Cashing services
· check cashing services for both government and paychecks - (fees should be set such that they are lower
than those set by typical check cashers, but high enough to be profitable for the banks)
· One stop shopping services such as thought offered by check cashers (money orders, wire transfers - both
domestic and international, bill payment, calling cards, etc.)
– Traditional banking services
· low -cost, low-minimum balance deposit accounts, with creative product/service “bundling:” schemes such as
those offered by Union Bank of California
· ATM and debit cards for qualifying households, and in some cases, ATM access to those with problematic
credit histories as well
· direct deposit of paychecks and government checks
• Asset building accounts (similar to IDA accounts, but more general purpose)
– customers make regular contributions of a fixed amount for a fixed duration of time; the amounts should be set
at levels affordable by the LIC, and could be deducted via direct deposit from their paychecks or government
checks
– creative bundling of asset-building accounts with check cashing services
– risk/Reward program to encourage regular contributions
• Credit cards and loans
– creative use of technology and other efficient operations to enable smaller-value loans in cost-effective manner
– partnerships with Community Development Organizations or philanthropic organizations to provide deposit-
secured loans or loan guarantees

31. 31
DRAFT for discussion only
Appendix B - Service/product description summary, continued
• Insurance and Investments
– insurance and investment products (both individual and employer-based) offered through “aggregation point” in
neighborhood or community (e.g., faith-based organization, community-based organization) to gain economies
of scale
– examples
· Metropolitan Life Insurance Company has a significant investment in loans, guarantees and equities in
community ventures with business development as a primary goal. Community Development Corporations
(CDCs) use 20% of funds from MetLife on commercial ventures that maximize profits in low-income areas.
MetLife has reaped more than the below-market rates it charges for community investments, and has
numerous relationships with nonprofit groups that benefit the company
· State Farm Insurance developed a long-term, strategic relationship with Neighborhood Housing Services
(NHS) of Chicago to expand its markets in low-income neighborhoods. It has invested at least $50 million to
finance outreach, training, underwriting of property insurance and home safety loans

32. Demographic and Economic Profile of Low-Income Financial Consumers
Potential Market for Mainstream Financial Institutions
A Life Cycle - Full Service Strategic Model
Appendices
• Who are the low-income consumers? What are the primary characteristics and behaviors
that drive their selection of financial services and providers?
• Where do low-income shop for financial services?
• What is the size of the low-income market?
• What are the key strategic shifts that banks and other financial institutions need to make
to serve this market effectively?
• What are the benefits for Financial Institutions and low-income consumers?
Case Studies
Executive Summary

33. 33
DRAFT for discussion only
Case Summary - Fleet Community Banking Group, First Community Bank
• First Community Bank (FCB), the retail arm of Fleet’s Community Banking Group (CBG) with 67
branches and $2.4 billion in deposits has become a national model for serving inner-city communities
• Small Business Lending to
entrepreneurs, minority and women-
owned businesses, and other small
businesses in LMI (Low to Moderate
Income) areas
• Affordable Housing / Mortgages to LMI
borrowers
• Community Development
Lending/Investments
• Consumer Lending in LMI areas
• Personal Banking
• Small Business and Equity Investments
• Technical Assistance and Support
Products and Services Delivery Mechanisms
• Branches and ATMs in LMI communities
• Partnerships with government, community- based
and other private sector organizations
• CommunityLink program and on-line banking
– provides computers, Internet access, training and
community-based content to qualified applicants in LMI
neighborhoods; a prototype was introduced in the
Roxbury neighborhood of Dudley Square in Boston, MA
and the Ironbound section of Newark, NJ
• Technical Assistance Program (TAP)
– provides specific information and training to individuals,
businesses and organizations in the areas of small
business development, rural support, predevelopment,
financial literacy, community development, affordable
housing and emerging market
– leverages existing partnerships or establishes new
relationships to support LMI initiatives as part of TAP

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Case Summary - Shorebank Corporation
• Shorebank Corporation is the country’s oldest and largest community development bank holding
company with $1.1 billion in consolidated assets in 2000
• Banking Centers and
ATM locations
– 2 new supermarket
branches
• Shorebank Affiliate
companies
• On-line banking
Products and Services Delivery Mechanisms
• Consumer Products and Services
– basic checking and savings ($250 min. deposit, 3 withdrawals, no monthly
fee), savings accounts for minors (min. $25 deposit, no fees)
– consumer loans (personal, savings secured, auto, home equity)
– Certificates of Deposit
– IRAs, Retirement & Investment services
– development deposits - socially responsible investing
– budget planning
• Business Products and Services
– business Loans (commercial line of credit, equipment financing, debt
financing, real estate acquisition & expansion loans, term loans, working
capital loans)
– business Deposit Services (commercial checking, account reconciliation,
custom reporting, Corporate ATM, sweep accounts)
– cash Management Services
• Churches and not-for-profit services
– church loan program, other products and services, including Individual
Development Accounts (IDAs)

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Case Summary - Union Bank of California
• Basic Services
– one-stop shopping for check cashing, money orders,
bill payments, wire transfers (domestic and
international), etc. (1% fee for govt. checks and 1.5%
for paychecks); money orders cost $1 or $.50
– low-cost, low -minimum balance checking and
savings accounts
· Benefit Transfer Service similar to the ETA
account; no ATM card
– membership cards and service plans, e.g. a Money
Order Plan designed to build trust and customer
loyalty ($3 fee for Cash & Save member, and $10
annual fee for Money Order Plan with six free money
orders, with a 1% fee for all checks for 1 year)
• Asset-building accounts
– the “Nest Egg” savings account open to anyone, with
no fees and a passbook ($10 initial deposit + $25 a
month for one year); no ATM card
– a service bundle consisting of the Nest Egg and
Money Order Plan
• Cash and Save outlets
located in:
– large discount stores (highest
volume of transactions); cater
mostly to moderate-income
consumers (four outlets)
– traditional bank branches
– high tech laundromat which
includes a video-rental and a
fast-food store (one outlet)
• Community Based
Organizations (for Financial
Literacy and Education)
Products and Services Delivery Mechanisms
• Union Bank of California, with $33 billion in assets had (as of early 2000) twelve “Cash and Save”
outlets in Los Angeles and San Diego, and has a 40% stake in a check cashing company

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Union Bank of California Case Summary, continued ...
• Results from Union Bank of California study:
– between 120,000 to 125,000 check cashing customers
– expect 40% of these to transition to a traditional deposit account1
– Cash and Save outlets in large discount stores are the most profitable
· they have a very high volume business, cashing at least 3 times as many checks as the
outlets in the traditional bank branches
· most of the revenue in these outlets is generated from check-cashing fees
· relatively few conversions to deposit accounts at these branches
1
Transcribed from comments made by Jim Laffargue, Union Bank of California during a conference call sponsored by
Business for Social Responsibility, on Oct. 18, 2001

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Case Summary - Operation Hope
• Operation Hope is an LA-based non-profit investment-banking organization that runs an extensive
program to help would-be borrowers obtain credit ratings
• Since the opening of its banking center in 1996, Operation Hope has educated 26,000 adults and youths
on economic and financial literacy and counseled 2,000 individuals in credit counseling programs. It has
facilitated $46 million in loans to approximately 400 businesses and new home owners
• Partnerships with local churches,
community based organizations,
educational institutions, private sector
corporations and the government using the
following delivery platforms:
– programs offered at Home Loan Centers,
Regional Business Empowerment Centers, and
Inner-city Cyber Café network
– programs offered at Operation HOPE Banking
Centers which provide “one-stop” shopping for
banking, financial and education services
– “BOOF E-learning Across America”, an online
distance learning program to deliver BOOF on
the Smartforce platform
– Operation Hope/UCLA Extension Satellite
Centers, Operation Hope/Smartforce Satellite
Centers
Products and Services Delivery Mechanisms
• Economic Education and Empowerment
– home ownership ( FHA and VA loan products, conventional
and jumbo loans, loan programs for low, middle and upper
income individuals, no down payment programs, no cost, no
fee, purchase and refinance, others)
– small business services (small business enterprise
incubation, business plan and marketing plan assistance,
hands-on technical support, and small business lending)
– HOPE Private Banking Service Center program (credit
counseling, budgeting, financial planning, investment
planning, tax preparation, technical assistance, other
services)
• Digital Empowerment
– IT certification, computer literacy, business fundamentals,
new economy jobs, others
• Banking on Our Future (BOOF) - Economic Literacy for
Youths

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Case Summary - Banco Popular
• Banco Popular North America, with 94 branches in the U.S. is a full-service bank, and a subsidiary of
Popular North America with $5.1 billion in assets. Since its inception in 1893, its history has been
linked closely with the economic and social welfare of the communities it serves. It’s parent company,
Poplar Inc. has over $25 billion in assets and continues to expand it’s presence in the United States,
the Caribbean and Latin America
• Banco Popular has evolved from its origins in Puerto Rico to become the largest Hispanic financial
institution in North America
• Products and Services for the unbanked:
– Popular Cash Express
· a “one-stop-shop” retail financial services outlet (check cashing, wire transfers, utility payments, money orders,
etc.), with additional value-added products and services such as insurance and travel services. Banco Popular
has been working on developing a suite of credit products, including credit cards and personal loans specifically
designed with this target market in mind
– Educational video and television
· Banco Popular participated in a the production and distribution of “El Sueno Americano” an educational video
geared towards educating Hispanics on the importance of establishing and building a good credit history. The
bank has also sponsored segments on the weekly television show “Sabado Gigante”, where it actively promotes
homeownership as a way of attaining financial security and an improved quality of life
– Direct Deposit
· Banco Popular was the first institution in Puerto Rico and among the first in the United States to offer an
Electronic Transfer Account (ETA) to federal benefits recipients. “Acceso ETA” is a low-cost account that allows
customers to receive their federal benefits via direct deposit. This account offers full access to all traditional
distribution channels as well as access to over 22,000 ATMs and point-of-sale terminals in Puerto Rico

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Case Summary - Nehemiah Corporation of California
• Along with a variety of programs and affiliate organizations, Nehemiah Corporation leads the nation in urban
revitalization and redevelopment. To date, Nehemiah has provided more than $335 million in down-payment
assistance gifts, resulting in $10 billion worth of investment, and helped more than 98,000 families and individuals
achieve their dream of ownership
Programs and Affiliates
The Nehemiah Program®
Program and Affiliate Descriptions
Provides gift funds (of between 1% to 6% of the contract
price) for down payment and closing costs (of any resale
or new property) to qualified buyers using an eligible loan
program, such as an FHA loan
The Nehemiah Conventional Loan
The Nehemiah Conventional Loan combines a 97% loan-
to-value first mortgage with a 5% second mortgage to
create a 102% combined loan-to-value loan up to a
maximum dollar amount of $289,175 for qualifying buyers
The Nehemiah Community Reinvestment
Fund (NCRF)
The NCRF invests in community development projects.
Nehemiah has invested $24 million to date to fund
development projects in the communities it serves
The Nehemiah Community Foundation
Provides grants to faith-based and community based
organizationsNehemiah Urban Ministries, Inc. (NUMI)
Develops, sponsors and promotes urban ministries.
Nehemiah Urban Land Trust (NULT)
Acquires, manages and preserves affordable and special
needs housing for low-income families and individuals